GBP/USD trims the first weekly gain in five near mid-1.2400s ahead of UK Retail Sales

• GBP/USD remains pressured around daily low, extends pullback from fortnight high.
• Brexit woes, rate hike chatters keep buyers hopeful amid mixed feelings.
• UK/EU keeps jostling over NIP, softer US data battle hawkish Fed concerns.
• UK Retail Sales for April becomes important after softer inflation, strong jobs report.

GBP/USD takes offers to renew intraday low near 1.2445, paring the biggest weekly gains in five during Friday’s Asian session. The cable pair cheers broad US dollar weakness the previous day but Brexit headlines join the pre-UK Retail Sales anxiety to weigh on the quote of late.

That said, the US Dollar Index (DXY) braces for the first negative weekly loss in seven, despite being up 0.20% intraday around 103.10 by the press time. While repetitive Fedspead favoring 50 bps rate hike and softer US data could be linked to the DXY’s previous loss, the latest Reuters poll and comments from the IMF seems to have renewed the greenback.

IMF Deputy Managing Director Kenji Okamura recently followed Managing Director Kristalina Georgieva’s signals for tighter monetary policy ahead by saying, “Asian economies must be mindful of spillover risks as a decade of unconventional easing policies by major central banks is withdrawn faster than expected.”

Also underpinning the USD rebound could be the latest Reuters poll mentioning, “The US Federal Reserve will lift interest rates higher by the end of this year than anticipated just a month ago, keeping alive already-significant risks of a recession.”

It’s worth noting that improvement in China’s covid conditions and Shanghai’s plan of gradual unlock, backed by zero covid cases outside the quarantine area in recent days, keep the market sentiment positive.

Alternatively, fears of a spat between the European Union (EU) and the UK over the Northern Ireland Protocol (NIP) weigh on the GBP/USD. Also, fears of growth and inflation exert downside pressure on the cable.

On Thursday, Kansas City Fed President and FOMC member Ester George said she is comfortable now doing half-point rate increases. However, Federal Reserve Bank of Minneapolis President Neel Kashkari mentioned the need for the Fed to be aggressive.

Talking about the US data, the latest print of the Federal Reserve Bank of Philadelphia’s Manufacturing Activity Index for May dropped to the lowest reading since May 2020, to 2.6 from 17.6 in April. Further, the Initial Jobless Claims in the week ending on 14 May rose to 218,000, the highest level since January, from 197,000 one week ago and expected a rise of 200,000.

Looking forward, the UK Retail Sales for April, expected -7.2% YoY versus 0.9% prior, will be crucial for the GBP/USD traders considering its lion share contribution to the GDP, as well as due to the higher pressure on the Bank of England (BOE) to act more aggressively, not to forget amid softer UK inflation and firmer jobs report. Should the UK data misses the downbeat forecasts, the GBP/USD prices may rebound and stay on the way to weekly gains. On the contrary, a downbeat print is already priced in and hence may not affect much to the cable prices much unless being extreme.

Technical analysis

GBP/USD extends pullback from a two-week-old rising wedge bearish chart pattern, backed by the RSI retreat from nearly overbought territory. As a result, the latest weakness could aim for the 1.2400 threshold before directing bears towards the stated bearish chart pattern’s support line around 1.2365.

Meanwhile, recovery moves remain elusive until staying below the stated wedge’s resistance line, around 1.2530.